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Shanta Gold sees costs coming down further after record output

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Market: AIM
Sector: General Mining - Gold
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is an emerging gold producer, engaged in both exploration and mining projects in highly prospective, under-explored areas of Tanzania ” Shanta Gold has an experienced board of directors and management team with strong relationships within Tanzania. Shanta Gold focuses on developing smaller, higher-grade mining projects with a low cost...

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Shanta Gold still on course to hit production target, says CEO Taylor

December 08 2011, 2:40pm Production will get underway in the first quarter of 2012

Shanta Gold (LON:SHG) is still on course to hit its target of 40,000 to 45,000 ounces of gold year next despite a delay to the commissioning of the New Luika plant in Tanzania, according to chief executive Gareth Taylor.

Production will get underway in the first quarter of 2012 instead of this month.  But with 11,000 ounces of gold sitting in the stockpile, Shanta will hit the ground running once the plant is finally commissioned.

“We have the option to high grade. It is simply a matter of getting it into the plant now,” Taylor said. 

“It doesn’t change the economics of the company. I think we are still on target for 40-45,000 ounces next year, which is essentially what we said in November.”

The hold-up was caused by the late delivery of the screening plant. However there were also smaller hiccups.  

“It took us six weeks to get the screens to site, and two weeks to get them along the last hundred kilometres,” Taylor said.

“Unfortunately it has knocked us back in terms of the December production.

“There were also a couple of other small mistakes ordering key equipment. It was only when we de-stocked the containers that we saw that.”

While commissioning New Luika, the group is looking at the financing options for its second Tanzanian project, Singida. 

In the mix are bank debt and funding the development using New Luika’s cashflow. An equity issue is not an option, Taylor said.

“There will be no dilution (of existing investors). We have quite a few people talking to us,” he explained. 

“For banks and lenders we are a good prospect being so close to production.

“We are in the process of speaking to a number of different institutions for Singida.”

A feasibility study determined the deposit could be developed into a 45,000 ounce a year gold mining operation at a cost of US$39 million. The mine’s operation costs are expected to be in the order of US$412 an ounce.

As demonstrated by New Luika and Singida, Shanta’s strategy is to pick off fairly narrow, steeply dipping quartz vein deposits the big boys ignore on principle because they are just too small to mine economically.

Shanta’s New Luika mine in Tanzania is a case in point. Where say a mining major’s costs might be in the order of US$1,000 an ounce to get the precious metal out of the ground, the AIM-listed junior expects to be able to do this for as little as US$560 an ounce, or US$610 at worst.

And its capex costs are piffling in comparison with the amount a major would have to sink into infrastructure, plant and machinery. However don’t let the small scale of New Luika fool you. When the plant is fully commissioned next year it will very quickly become a cash machine.

In the first three years, New Luika's production is expected to be 175,000 ounces to 190,000 ounces. 

The maths is very simple given the cost structure outlined. New Luika will pay for itself within the first year, and there will be enough there to bankroll a second mine at Singida, also in Tanzania, where there are almost 1.4 million tonnes of ore at 4.97 grams per tonne of gold.

What Shanta plans to do is roll these US$30 million mine and processing facilities out almost like a franchise model, or where it is practical truck in ore to existing production facilities.

“Our aim is to build three or four through more successful exploration,” Taylor told Proactive Investors in an earlier interview. 

“At the moment all we can promise is New Luika and next at Singida. But hopefully we can build on after that. 

“When we build Singida we will be at 100,000 ounces (of gold a year).

“Hopefully we will be successful with our Great Basin Gold joint venture ground. This is blue sky thinking, but if we could replicate another two mines that would put us in the 200,000 ounces a year range.”


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